Creatives work hard for their money. And not just in the studio. It takes a lot of work just to find projects in the first place. We have to build portfolios, market our work, make presentations, and write proposals. Only after successfully winning new business do we start pouring ourselves out to produce our work. After all this preparation, anticipation, and energy is spent, it can be extremely frustrating to have to wait, what can seem like an eternity, for that all important check to arrive that keeps it all going.
Are you ready to take the struggle out of finding new clients?
One of the risks we take as creative entrepreneurs is delay of, or failure of clients to pay our invoices. We have to trust that at the end of a project our clients will be happy and promptly pay our final invoices. This risk is even greater when our payment terms follow the common 50% up front and 50% on completion practice. That first 50% doesn’t stretch all the way to the end of a project, and so by the time a project is nearing completion—we’re running on fumes. And if, for some reason a client withholds payment, we’re in a real pinch—and all the negotiation power is with the client—they have us over a barrel.
Assuming that a project does go smoothly, and that there are no real issues that might cause a client to legitimately challenge an invoice, it can still be difficult to manage the gaps between completing work and getting paid. But there are some practices you can develop which will make cash management more tolerable.
First off, reconsider those typical 50/50 terms. You’d be much better off, if your projects take more than a few weeks to complete, to break your invoices down into thirds, or fourths, or even smaller increments. More frequent project payments can keep revenue and effort in sync.
Also, when you negotiate a project make sure to communicate that your invoices will be sent “Due Upon Receipt.” While this is no cure all, if you don’t do that, then you can’t blame your clients for assuming 30 days, or longer payment terms. While “Due Upon Receipt” invoices are still treated by most Accounts Receivable departments as though they still have 30 days to pay, immediate payment terms will at least allow you to inquire about payments sooner rather than later.
But at the end of the day, you simply have to adjust your cash management expectations to typical 30-45 day payment cycles. If you presume on payments coming any faster than that, you’re setting yourself up for constant cash flow pressures. On the other hand, if you assume this delay, and structure your revenue projections accordingly, it will force you to ensure your projects are profitable enough to create and maintain a cash cushion that easily covers these gaps.
Of course every once in a while you may encounter a client that just isn’t paying their bills. This is usually for one of two reasons. Either they weren’t happy with your work, feeling that they didn’t receive what was agreed to, or they’re simply having financial hardships of their own.
If they are not happy, your best course of action is to communicate and negotiate. The costs of pursuing them in court are almost never worth the amount due, and so taking a cut may be necessary. If you’re honest, even if you disagree with them about the quality you delivered, these kinds of conflicts can almost always be traced back to failures in communication that lead to mismatched expectations. And it takes two parties to fail in communication, so on that basis alone offering a discount, can often resolve the issue. And then count that cost as the price of learning how to communicate better next time!
But if the problem is your client’s financial trouble, then the best course is to ask for a longer-term payment plan. Ask for 5 or 10% per month until it’s paid up. Not only will this get you paid eventually, but if for any reason they change their tune and stop paying, they can’t claim that you didn’t deliver. Their agreement to pay over time constitutes legal proof of their acceptance of your work.
It would be nice if every client paid their invoices as soon as they received them. Some do, and you should always thank them! But most will pay as slowly as possible. So you need to build this reality into your business model.
Until next week: don’t let the business of creativity overwhelm your creative business.